Creating a Merit Matrix

How to Create a Merit Matrix When is it time for your organization to allot its merit budget, how do you best support the decision makers? Consider creating a merit matrix. A merit matrix is a great tool that can easily summarize and boil down paragraphs of policy into a simple, quick-to-view and quick-to-use visual to produce better decisions.

January 7, 2011

How to Create a Merit Matrix

When is it time for your organization to allot its merit budget, how do you best support the decision makers? Consider creating a merit matrix. A merit matrix is a great tool that can easily summarize and boil down paragraphs of policy into a simple, quick-to-view and quick-to-use visual to produce better decisions.

A Good Merit Matrix

Performance	Below Midpoint	Above Midpoint
Exceptional	5.0	4.5
Above Average	3.5	3.0
Meets Standards	2.5	2.0
Needs Improvement	0	0
Not Meeting Standards	0	0

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This matrix is good because it takes into account differences in performance and relationship to the salary grade midpoint. With roughly 70 percent of companies saying they want to link performance and pay, this matrix does so. This matrix makes it clear the better the performance, the better the raise.

Every organization wants to maximize its bang for the buck. To that end, no additional money should go to those employees not meeting standards or better for their performance output.

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A Better Merit Matrix

Performance	Below Midpoint	Above Midpoint
Exceptional	0 – 5.5	0 – 4.5
Above Average	0 – 4.0	0 – 3.0
Meets Standards	0 – 2.5	0 – 2.0
Needs Improvement	0	0
Not Meeting Standards	0	0

This is a better merit matrix because it gives a range in each cell instead of one set figure. Each decision-maker in your organization has a different distribution of talent; so each will have different challenges on how to distribute their dollars allocated for increases. By stating the increase opportunities as a range, it is more accurate, so more easily shared publicly. This takes into account that one group where everyone is rated exceptional, there just may not be enough money for everyone to get the top dollars in that awesome work group.

The Best Merit Matrix

Performance	80-87%	88-94%	95-105% TARGET	106 – 112%	113 – 120%
Exceptional	0 – 8.0	0 – 6.0	0 – 5.0	0 – 4.5	0 – 4.0
Above Average	0 – 6.0	0 – 5.0	0 – 4.0	0 – 3.0	0 – 2.0
Meets Standards	0 – 4.0	0 – 2.5	0 – 2.0	0 – 1.5	0 – 1.0
Needs Improvement	0	0	0	0	0
Not Meeting Standards	0	0	0	0	0

This merit matrix takes the penetration in the salary range much more seriously than the other two. It recognizes that there is a target range about the mid-point value of the job. It clusters together those employees all within five percent of the midpoint. It also makes greater distinguishing differences the closer or farther away an employee is from that target. This matrix can be used with total transparency in your employee communications.

The values in all three matrices are for illustrative purposes. Your values need to be customized for your own budgets and the cultures. Encouraging your leaders to use your own customized matrix can help you control your budget costs and increase consistency of reward matching performance, which is what most of us say we want.

Regards,

Beverly N. Dance
MBA, SPHR-CA, CCP, CEBS
Principal, Dance Associates
Human Resources Consulting
dance@mba.berkeley.edu

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